Gold reserves hit rock bottom

12:57, 13 December 2012
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By the end of the year the NBU hard currency reserves may decrease to US $24 bn, i.e. 3 months of import coverage, a KW article by Tetyana Pysmenna reads.

The NBU plans to peg the national currency to the multi-currency basket are an ambiguous concession to the IMF seeing as Ukraine desperately needs money to pay off its foreign debts. However, the IMF flatly refuses to renew the stand-by program should Ukraine not fulfill a number of the lender’s demands, including switching to a flexible exchange rate. However, by making concessions to the lender, the NBU is implementing its own plans for de-dollarization of the nation’s economy.

Pegging the hryvnia to the multi-currency basket can be an alternative to the introduction of flexible currency formation. In recent years former head of the central bank Council Petro Poroshenko suggested including the U.S. dollar, Euro, Russian ruble, Polish zloty and British pound in the currency set. But in reality the plan to peg the national currency to the multi-currency basket will require much more efforts. The more currencies there are in the basket, the harder it will be for the NBU to foresee fluctuations of currencies, calculate acceptable changes in the exchange rate, smooth out its extremities, etc.

“The task for the NBU is to make the population understand that the currency exchange rate at exchange outlets will be constantly fluctuating based on the economic situation, the balance of payments, liquidity, etc. I believe such a policy will be more appropriate to break people’s habit of constantly reacting to exchange rates,” said head of the NBU Council Ihor Prasolov.

In any event, with NBU reserves dwindling and taking into consideration that the central bank will have to spend a huge amount on paying off the nation’s foreign debts the NBU will not be able to de-peg the national currency from the U.S. dollar without kindness and financial support from the IMF. Even if Ukraine’s officials manage to cut a deal with the IMF, the plan for switching to a multi-currency basket will be delayed at least until the the middle of 2013, the article concludes.

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